Five members of a suspected criminal gang who allegedly stole the identities of 700 British citizens have been arrested on suspicion of an attempted £500,000 UK tax fraud.

A 35-year-old man from Bologna has been charged with cheating HM Revenue and Customs (HMRC) and is in custody after being arrested by its investigators when he landed at Stansted airport, Essex, on Saturday. Four others were arrested at Stansted and in London and Chatham, Kent. They have been released on bail. Italian police said the men were of Nigerian origin.

In Italy, state police responsible for investigating cybercrime claimed the man in Bologna had applied for £500,000 in rebates and had collected more than £100,000 over more than a year after stealing the identity of 700 UK citizens. British investigators traced the suspicious online applications and flew to Italy in May to meet a local prosecutor Antonello Gustapane.

HMRC is investigating what it termed "a cyber-attack" by a group suspected of illegally obtaining personal data from third parties so it could set up false self- assessment accounts with HMRC, beginning over the 2012 Royal Jubilee weekend, with the intention of stealing false tax rebates.

"These arrests clearly demonstrate that we can, and will, apprehend those suspected of attempting to cheat UK taxpayers by defrauding HMRC, with international assistance if necessary."

Italian investigators identified the Bologna suspect who was then tracked by the communications police from his apartment on the city's outskirts. He was said to fly frequently to London. As he was arrested, Italian officials together with two UK customs and revenue officials searched his apartment and removed computers.

A member of the communications police in Bologna said: "It was a very modest apartment that the man shared with his wife, mother-in-law and two children. There must be a fault in the UK system to allow this kind of crime," said the official. "We have not seen this kind of fraud in Italy because this kind of operation remains more paper-based."